Shifts in Demand

1. Shifts in Demand Mr. Barnett University High 2012-2013 AP Microeconomics

2. Demand – schedule of quantities of goods or services that will be purchased at various prices, at a specified time, all other things held constant • Those “things” being held constant are the determinants of demand • Number of consumers • Income normal goods • Income inferior goods • Consumer tastes and preferences • Prices of related products – Substitutes • Prices of related products – Complements • Expected future prices by consumer • Expected future income by consumer • As we all know, the demand of goods or services change over time • These changes cause shifts in the demand curve • An increase in demand is shown by a shift to the right • A decrease in demand is shown by a shift to the left

3. Equilibrium • If we put up a supply and demand curve at the same time … • Equilibrium – when market price has reached level where quantity supplied equals quantity demanded • Equilibrium price – price where quantity supplied meets quantity demanded • Equilibrium quantity – quantity supplied and quantity demanded at the equilibrium price • Shifts in curves will change equilibrium price/quantity

4. Number of consumers • Can change because of various reasons • Population • If 5 new families move into your neighborhood • If the local school begins classes • Weather • An incredibly hot September • A extremely cold November

5. Income Normal Goods • Number of consumers increases • Shift right • Number of consumers decreases • Shift left

6. Income Normal Goods • Normal good – a good where an increase in income leads to an increase in demand • Inferior good – a good where an increase in income leads to a decrease in demand • As people’s incomes increase, they tend to buy more normal goods • As people’s incomes decrease, they tend to buy more inferior goods

8. Income Normal Goods • Increase in income - impact on normal goods • Shift right • Decrease in income – impact on normal goods • Shift left • Increase in income – impact on inferior goods • Shift left • Decrease in income – impact on normal goods • Shift right

9. Preferences & Tastes • When consumers have a change in preference or tastes, the demand for the good changes accordingly • Oprah’s book club • Medical studies

10. Preferences and Tastes • Increase in preference • Shift right • Decrease in preference • Shift left

11. Substitutes • Prices of related products – Substitutes • As price of product x rises, its quantity demanded decreases • Demand for product y increases • As price of product x falls, its quantity demanded increases • Demand for product y decreases

12. Substitutes • Prices of related products – Complements • As price of product x rises, its quantity demanded decreases • Demand for product y decreases as well • As price of product x falls, its quantity demanded increases • Demand for product y increases as well

13. Substitutes • Expected future prices by consumer • If people expect prices to go up, demand _____ • Increases; shift to the right • If people expect prices to go down, demand _____ • Decreases; shift to the left • Expected future income by consumer • If people expect their income to go up, demand _____ • Increases; shift to the right • If people expect their future income to go down, demand _____ • Decreases; shift to the left